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Citigroup was locked in talks with the US Treasury, New York Federal Reserve and shareholders last night as it scrambled to stave off another run on its shares.
The once mighty Wall Street institution ran full-page newspaper adverts in the US and Britain yesterday to reassure investors and creditors that it can survive the latest bout of turmoil in the markets.
A slump in Citigroup stock last week, which saw its shares lose 60% of their value, indicated that a bigger gesture is needed to restore market confidence in the banking group. According to reports yesterday, Citigroup's embattled chief executive Vikram Pandit is leading talks with sovereign wealth fund investors and the US government about securing a fresh capital injection on top of the $25bn it obtained from the Treasury's Troubled Asset Relief Program last month.
Citigroup's asset base of $2tn (£1.34tn) could force the US government to intervene, according to some observers, because it is far bigger than Lehman Brothers, whose bankruptcy in September led to a deepening of the credit crisis that is threatening to engulf Citigroup. A spokesman for the bank declined to comment, as did the US Treasury and New York Federal Reserve.
Citigroup is adamant that the share price slump, which has pushed its stock to the lowest point since 1992, is a product of mistaken fears about the strength of its balance sheet. In its newspaper adverts, it said financial markets had been tested in "unprecedented ways" this year but its diversified business model - which ranges from credit cards to transaction services and investment banking - would steer it through the uncertainty. It ended with a clarion call and an unintentional allusion to the exhaustive talks this weekend at Citigroup's Manhattan headquarters: "That's why now, more than ever, you can feel confident that Citi never sleeps."
Mike Mayo, analyst at Deutsche Bank, believes reserves of $25bn and other resources should cover estimated losses of $50bn on bad loans. Richard Bove, at Ladenburg Thalmann & Co, said it would take a repeat of the Great Depression to threaten Citigroup's survival.
However, concerns over the US economy are focusing on Citigroup. Sean Egan, at Egan-Jones Ratings, has argued that the bank might need a further $50bn. The fear is that if US growth deteriorates severely Citigroup will be exposed to more losses.
Pandit has ruled out breaking up Citigroup and dismissed reports that it might sell Smith Barney, its wealth management arm. It is understood executives have not ruled out a break-up. Market professionals said Citigroup's stock will not recover if it relies on newspaper adverts and conference calls. Joe Saluzzi at Themis Trading said it needed to announce a break-up, management change or restructuring by today. "That would probably continue a rally on Monday morning."
Pandit's 11-month tenure as Citigroup chief executive is also the subject of media speculation this weekend.
Some analysts said the share rout also signalled a belief that the government will have to stage an AIG-style takeover.
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